Light-speed trading leaves regulators behind

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We have a quaint image of share trading as comprising a group of young men with slicked-back hair, brightly coloured blazers and shiny shoes all shouting at each other in pits at stock exchanges around the world. But those days are long gone.

Why? Because it was inefficient and too slow. No person could replicate the speed of a computer with a fibre-optic cable; more remote was the possibility that a human being could match a program tailor-made to spot an opportunity and trade in microseconds.

It's this world that Michael Lewis explores in his new book, Flash Boys.

For anyone familiar with Lewis' work, his method here is a favourite one of stumbling across unlikely characters who could have stepped straight out of Central Casting and then prising from them tales that shine a light on a hitherto closed world. His skill, which he has been honing ever since his classic Liar's Poker in 1989, is to make a complex, dry-as-dust subject colourful, ever so readable and shocking.

Back then, Lewis wrote Liar's Poker because he was appalled by what he experienced as a bond trader at Salomon Brothers.

Roll forward a quarter of a century and Lewis continues to expose mind-numbing, awful behaviour. His anger is just as marked as it ever was.

"If it wasn't complicated, it wouldn't be allowed to happen," Lewis said on CBS' 60 Minutes news programme. "The complexity disguises what is happening." He added: "The stock market is rigged".

That is the crucial difference between now and then - that the gambling element has vanished.

Forget gentlemanly handshakes and the tradition of "my word is my bond". What Lewis introduces here is a harder, terrifying side; an industry peppered with phrases like dark pools - effectively private stock exchanges run by the biggest brokers - and algorithms, front-running, trading speed and liquidity.

Late in the day, the authorities have woken up - "Insider Trading 2.0" is New York attorney-general Eric Schneiderman's phrase for it.

This is a disturbing work, and yet again the authorities emerge as too slow, unable to keep pace with the financial sophisticates.

- Independent